Marriott bids for Gen Y business with AC Hotels

Through a joint venture with Marriott, AC Hotels will open its first U.S. properties later this year.

As hotels are learning it's going to take more than free Wi-Fi, a Facebook account and extra sockets to please the millennial traveler, Marriott is bringing the AC brand to the United States with hopes of locking in the loyalty of the Gen Y business traveler.

It has so far approved plans for 33 hotels in the United States, with the first set to open in New Orleans in September, followed by Kansas City and Miami, said Callette Nielsen, brand vice president for AC Hotels by Marriott.

Marriott already had millennials in mind when it partnered with Ian Schrager on Edition hotels, and recently announced a new European budget line, Moxy. It will now look to lure the business- focused young crowd with its joint venture with AC Hotels, which already runs 51 hotels in Spain, 10 in Italy and two in Portugal.

"If you look at who is trying to compete in that space, no one has a great foothold in that space," Nielsen told CNBC.

In the company's annual report, Marriott CEO Arne Sorenson called AC "a design-focused brand inspired by the fashion houses of Europe that appeals to younger business travelers."

The upper-moderate European-designed AC Hotels will have free Wi-Fi throughout all its properties, mobile check-in, 24-hour snack-stocked lounges, fresh, healthy, local food and drink brands, USB charging ports, lots of personalization options and in-room technology that lets guests easily tap into their own entertainment plans, such as Netflix and HBO GO. The hotels will be built with RFID-enabled lock to eventually allow keyless entry when that technology meets AC's standards, Nielsen said.

Prices will be competitive with hotels in the top end of the upper-moderate tier and the typical AC Hotel will have 150 to 175 rooms, she said.

The 33 deals add up to$1 billion of investment from the AC franchisees. Locations include Kansas City South; Miami Beach on Collins Avenue; Cincinnati West Chester; Chicago Downtown; Cincinnati Downtown; Tucson Downtown; New York City JFK Airport and New York City LaGuardia Airport.

Source: AC Hotels

Artist rendering of the AC Hotel in Miami Beach.

The race for the millennials will mean big business as they currently make up about one-third of U.S. business travelers, and will account for 50 percent by 2020, said Pranay Jhunjhunwala, a partner at The Boston Consulting Group and a co-author of the firm's "Traveling with Millennials" report.

Starwood, Marriott and Hilton are going to be the key players in the millennial space, with IHG close behind, he said. "They cannot afford to not go after the millennial traveler," Jhunjhunwala said.

However, the best innovations are likely to come from a small new player in the same way Uber has shaken up transit and car rentals, he predicted.

Personalization will be key to success as the next generation will guard their privacy except with a handful of brands, and then they will expect the company to know and meet their expectations. "Loyalty, big data and digitiization. You combine all the those and the epicenter of that is where you get personalization, " Jhunjhunwala said. "The key operating word is 'trust'."

The types of food and drink are another defining feature for the millennials.

The food and beverage offerings at AC will have a local, curated feel, Nielsen said. They've partnered with Starbucks for an Italian coffee and they'll be looking to serve local craft beers and spirits, such as Tito's vodka in Austin, Texas.

"The biggest trends around food and beverage that are being driven by millennial consumers are increased snacking, flavor innovation (bold, ethnic ingredients) and health/wellness," Sara Monnette, the senior director of consumer insights and innovation for Technomic consulting group said in an email to CNBC.

Examples of hotel brands doing it right, she said. include Thompson Hotels' Food Truck Concierge service; IHG's Even Hotels wellness-lifestyle brand focusing on well-balanced meals and healthful grab-and-go options; and the Hotel Indigo in Athens, Georgia, which offers breakfast grits stone-ground every morning by a mule named Luke on farm five miles away

Another difference between the millennial leisure and business traveler is that one is frugal, the other is indulgent, said Stephen Rushmore Jr., the president and CEO of HVS Global Hospitality Services.

Those habits are likely to stick, he predicted, comparing the millennials to the generation that came of age during the Great Depression. That thriftiness "stayed with them the rest of their lives," Rushmore said. "This is going to be part of their behavior for for the rest of their lives. I think even if they do get money, those habits will stick around."